Energy markets shocked higher

By Walt Breitinger

Saturday, January 19, 2013 - 9:56 am

Crude oil, gasoline and natural gas rallied sharply this week on the heels of bullish news. Unexpectedly, a militant attack on a natural-gas production facility in Algeria resulted in hostages being taken and killed, including American, British and Japanese citizens. The attack put foreign-policy and energy analysts on edge.

Although details are still spotty, some believe that al-Qaeda may be implicated in the attack, suggesting a further destabilization of North Africa.

Algeria is the 15th-largest oil producer in the world, and this attack contributed to the rally in crude oil. Crude oil gushed over $96 per barrel Thursday, the highest price in four months.

Additionally, U.S. energy markets pushed higher on cold weather forecasts, indicating higher demand for natural gas and heating oil. Natural gas rose more than twenty cents per million British thermal units (+6%) during the week, trading Friday near $3.52, the highest price in five weeks.

Long-term, energy analysts believe that U.S. energy prices will be less exposed to global supply shocks as U.S. natural gas and crude oil production continues to rise. If current projections hold true, the United States could become the world's largest oil producer by 2020.

Cattle corralled lower

Cattle prices collapsed this week, falling by more than 5 cents per pound (down 4 percent). Prices had been softening due to tepid consumer beef demand, which has been waning in the face of near-record beef prices. The selloff accelerated when news broke that a beef processing plant in Texas was closing its doors. This story caused a mass exodus from the cattle market, with many investors selling their cattle holdings.

Some traders feel that the recent selloff was simply a downward correction, necessary after prices rose nearly 20 cents per pound (up 17.5 percent) in eight months. Long-term, bullish cattle traders believe prices will continue to climb due to a nationwide shortage of cattle and still-high feed grain prices. As of midday Friday, live cattle for February delivery were worth $1.26 per pound.

Cotton floats higher

Cotton jumped to a three-month high at 78.37 cents per pound on Friday. This week's 2.75 cent (up 3.6 percent) rally came on rumors that China's cotton stockpile may be low-quality, which would require Chinese manufacturers to buy higher-quality US cotton. China is the world's largest cotton producer, but it frequently needs more than it produces, making China a major importer of US cotton.

Opinions are solely the writer’s. Walt Breitinger is a commodity futures broker in Valparaiso who can be reached through his website, www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.